Headline inflation maintained a downtrend in August, which was primarily supported by the high statistical base from last year’s corresponding period. According to the Consumer Price Index (CPI) data reported by the National Bureau of Statistics (NBS), headline inflation declined for the second consecutive month in August, easing by 125bps to 32.15% y/y. Parsing through the breakdown, we note that food inflation slowed for the second straight month by 201bps to 37.52% y/y (July: 39.53% y/y). Conversely, core inflation maintained an uptrend, rising by 12bps to 27.58% y/y (July: 27.47% y/y). The inflation reading came in lower than Cordros’ estimate (32.24% y/y) and Bloomberg’s median consensus estimate (32.20% y/y) by 9bps and 5bps, respectively. On a month-on-month basis, inflation slowed by 6bps to 2.22% y/y (July: 2.28% m/m), supported by a decline in food prices.
Food prices moderated for the second time in a row, decreasing by 10bps to 2.37% m/m in August (July: 2.47% m/m), translating to a y/y print of 37.52% (July: 39.53% y/y). We attribute the decline to the impact of the green harvest in August, which led to a marginal increase in food supplies. Nonetheless, we highlight that high logistic costs, exchange rate pass-through on food prices and below-average harvests tempered the decline in food prices. For context, the m/m inflation print significantly exceeds the August average of 1.47% m/m observed between 2018 and 2022. Parsing through the data, whilst Farm produce (-14bps to 2.18% m/m) and Processed food (-6bps to 2.42% m/m) slowed, imported food (+10bps to 2.61% m/m) increased during the review period following the persistent currency pressures.
On the other hand, core inflation (all items less farm produce and energy) continued its upward trajectory, increasing by 11bps to 2.27% m/m (July: 2.16% m/m). The increase reflects the cascading effects of higher Premium Motor Spirit (PMS) prices, stemming from supply constraints, on operational and transportation costs. Additionally, the depreciation of the naira further contributed to the increased price pressures within the core basket. The naira depreciated m/m to an average of NGN1,586.56/USD in August (July: NGN1,560.32/USD). Further analysis showed that price pressures were higher within the Education (+25bps to 1.42% m/m), transportation (+21bps to 2.68% m/m) and Restaurant & Hotels (+15bps to 2.63% m/m) sub-items, while prices decelerated for Miscellaneous Goods and Services (-30bps to 1.77% m/m), Recreation & Culture (-25bps to 0.55% m/m), Health (-16bps to 1.72% m/m) and Clothing and Footwear (-14bps to 1.67% m/m). On a year-on-year basis, core inflation rose by 12bps to 27.58% (July: 27.47% y/y).
Headline Inflation to Increase in September
As highlighted in our inflation update published last week, the significant increase in the PMS base price (+47.4% to NGN855.00/litre) is expected to heighten inflationary pressures in the near term, following the strong correlation between fuel costs and transportation expenses and the cumulative impact on consumer prices.
The commencement of the main harvest in mid-September is expected to augment food supplies, potentially leading to a reduction in food prices. However, the impact of increased logistics costs and sustained currency pressures is likely to temper the rate of decline in food prices. Consequently, we expect food inflation to moderate to 2.11% m/m in September, leading to a y/y print of 37.06% (August: 37.52% y/y).
Regarding core inflation, we foresee a further increase driven by higher energy costs, increased naira volatility, and rising transportation expenses. As a result, we forecast core inflation to climb by 12bps to 2.39% m/m, pushing the y/y rate higher to 26.76% (August: 26.36% y/y).
Accordingly, we project the headline inflation to increase by 2.29% m/m in September, cascading to a y/y inflation rate of 32.40% (August: 32.15% y/y).
Cordros
